Callable bond

A bond whose issuer reserves the right to redeem (or "call") it before the original maturity date. This feature represents a risk to the investor in that bonds are generally called when interest rates fall, and thus usually can´t be replaced with a similar yielding issue of the same quality. Usually, certain terms are set before the issue, such as the date after which the bond is callable and the price at which the issuer may retire the bond. The holder of the bond is usually paid a premium for early termination of the investment.